OPEC oil cut could ruin recovery in many economies

The group wants to stabilize crude oil prices, which have fallen in recent months as the world economy slows under the effects of the pandemic, especially in China and the war in Ukraine. It is proceeding with production cuts – since many members are already pumping well below their official quotas, the real impact on global supply would be around 1 million barrels per day, with a deficit of about 1% of global supply. It is estimated – despite requests from the US and other countries to pump more so as to save the world economy, especially vulnerable low-income economies, from the pain of high fuel costs.

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This is because oil producers want to avoid the kind of recession that occurred in 2014, when prices, after remaining high during the 2008 global financial crisis period and subsequent years, fell sharply and suddenly to $20. She had gone barrels in 2014, as the global economy slowed on the impact of the crisis. Low prices had helped in the post-crisis recovery in many economies, especially in India. But it had proved painful for oil exporters like Russia.

OPEC’s decision is reinforcing expectations that crude oil prices will remain high, which does not bode well for the slowdown, if not slowdown, world economy. The price of a barrel of Brent crude jumped nearly 2% to more than $93 a barrel on Wednesday following the announcement. After Russia invaded Ukraine, prices started falling from the highs of around $130 seen earlier this year. A barrel of Brent crude oil was trading at $84.06 at the end of September, as the global economy slowed. In July, OPEC agreed to increase production supplies by 3.1 million barrels per day. US President Joe Biden has also been ordering the release of oil (more than 100 million barrels) from the country’s strategic reserves.

Oil prices are widely expected to rise this winter, a season of high demand, as Europe imposes sanctions on Russian oil imports, a vital source of supply. Many estimates say that unless OPEC members are convinced to produce more, prices will remain close to $100 a barrel in 2022 and 2023. If these projections materialize, the recovery will not continue in many economies. Central banks will be forced to be even more aggressive in tightening monetary policy to reduce inflation by sacrificing growth.

Also, it will have geopolitical consequences. US President Joe Biden is disappointed with OPEC’s “short-sighted decision”, the White House said in a statement. Prices at the pump are a major issue for American voters in the midterm elections due in November.

The Saudi-led cartel announced the cuts to persuade the kingdom’s de facto ruler, Crown Prince Mohammed bin Salman, three months after the controversial visit of Saudi Arabia’s President Biden, to pump more barrels to cool prices. and after a meeting that lasted barely 30 minutes – is a blow to the White House.

OPEC’s production cuts risked US-led efforts to set a price cap for oil from Russia, through which the US hopes to affect Russia’s petro profits that fund the Kremlin’s budget. It forces President Vladimir Putin to end the war quickly. OPEC members say their cuts should be seen as an economic decision forced by global economic weakness, rather than a political statement in support of Russia. However, the fact remains that the sooner the war ends, the better the prospects for the world economy.

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